What returns do you look for?

[Brian Stewart]

What kind of returns are people getting on their property investments?

(I hope this isn't too forward a question to ask for my first post)

 

Also does anyone have any spreadsheets to calculate their gross, nett yields, RoI, etc that they would be willing to share?

[bhaveshparmar]

Hi bdstew,

 

I've used Rob and Rob's podcast on ROI some time ago and worked out an average of 3% ROI.

 

Bhavesh

[rosh1987]

I've been looking at 2 things - the net yield on equity (i.e. after finance costs, voids, fees etc) in year 1 and a forecast IRR.

[Brian Stewart]

Hi bdstew,

 

I've used Rob and Rob's podcast on ROI some time ago and worked out an average of 3% ROI.

 

Bhavesh

Hi Bhavesh,

I am getting 3% net and think I could do better.

[bhaveshparmar]

Hi bdstew,

 

the only way I think to achieve more is to reduce the cost, eg agents fees, overheads etc or the most obvious put the rent up.  its a fine balance between yield and potential growth in property value.  some of the flats i bought years ago and these make more money, but the later ones are dragging the overall yield down; this should improve with time over the next few years.

 

Bhavesh.

[rob bence]

It will depend on what type of investment you do.

 

HMO and Student lets will get you a double digit ROI

Standard BTL (Not sure standard exists) I look for 8% net ROI - London a lot less

[Guest Barry 965]

I'm a newbie but find a good rule of thumb is to aim for a purchase price equal to less than 200 x the monthly rent.

[Guest Barry 965]

I would like to support the question in opening post from bdstew by repeating it again....

Does anyone have any spreadsheets to calculate their gross, nett yields, RoI, etc that they would be willing to share?

Preferably ipad compatible in my case....

[nick stott]

I probably shouldn't be giving away my strategy, but it's not rocket science...

 

I've come up with a formula for the sort of investments that we do. At the top of my research document (geek), I've got this:-

 

RULES:

TV (Top Value)

TS (Total Spend) which is 70% of the TV and is the total of purchase + refurb/spending (max spend to give 30% equity)

 

1 bed:

TV: £47,400 | £47,000

TS: £33,180 | £33,000

 

2 beds:

TV: £57,000

TS: £39,900 | £40,000

 

3 beds:

TV: £63,000

TS: £44,100 | £44,000

 

4 beds:

TV: £81,000

TS: £56,700 | £57,000

 

Example (2 beds):

£57,000 revaluation gives 10% RR

£40,000 max spend to give 30% equity.

Therefore, each 2-bed must come in under £40,000 to buy and do up.

 

 

 

This works very well in our area and it's what we're focusing on for 2014. We're trying to buy houses like they're going out of fashion this year!

[mwoodage]

I'd be happy to share my spreadsheet, but the Forum will not allow the uploading of an Excel file. Is there a way around this ?

 

Martin

[BlueBhoy]

Can you save it as a PDF then try uploading that?

[Amit Chada]

If you sign up for a dropbox account (free) you can keep it in there and share the link on the forum.  https://www.dropbox.com/help/20/en

[mwoodage]

Ok, thanks for the advice.

 

Here's my spreadsheet for calculating return on investment, mortgage payments, returns, etc.

 

Happy for anyone to use it but do so at your own risk. I'm fairly happy that all the formulas are correct but you might want to check first. All you need to do is fill in the grey cells. I've already populated it with a basic £65,000 property with a 13k deposit and a £450 per month rental income.

 

Have a play around and let me know what you think, 

 

 

https://www.dropbox.com/s/5v5m3e2rgnfffdz/Property%20Calculator%20-%20Excel.xlsx

 

Cheers

Martin

[Robert]

I wouldn't buy anything with less than 7% return on full market value as a minimum. When you take into account the actual loan amount, it's higher. It seems to me that it allows for any scary increase of interest rates, and means that as prices increase it allows you to draw some of that equity for further purchases without falling foul of mortgage lenders rules of rent percentage over loan repayment. It works for me anyway!

[Guest Barry 965]

I'd be happy to share my spreadsheet, but the Forum will not allow the uploading of an Excel file. Is there a way around this ?

 

Martin

Thanks Martin, much appreciated. That's a super return on a £65,000 property. Any more for sale.....?

Regards

Barry

[Andrew Ridley]

Hi All,

 

I have a fairly specific strategy in mind which should, according to my spreadsheet (so it must be true!) provide 20%+ RoI in London.

 

This might seem crazy but here's an over view of how this would be achieved:

 

- Buy the property at 5% to 10% BMV

- Undertake extensive rennovation works to add 8% to 12% value above rennovation costs

- Optimise the layout to create minimum of 7 bedrooms and 3 bathrooms, designed to be let as a professional HMO, which should provide a gross yield of 8.5% minimum.

- Remortgage the property ASAP to pull out a decent chunk of the initial outlay (which is possible due to buying BMV and adding value through rennovation)

 

All in, with a high yield, and a decent chunk of invested capital pulled out through remortgage, it should be possible to achieve 20%+ RoI in London. I'm not saying this will be easy, it will require finding a fairly specific kind of property at a decent price - which is not easy in London. Then the rennovation work will need to be spot on, maximising the use of space and designing specifically for a professional HMO market. Then the revaluation for the remortgage would have to come in at the expected (fair) value, which is not guaranteed.

 

I'd be happy to run through the numbers in more detail if anyone's interested - and include some examples.

 

On a more general note, unless I was buying primarily for capital appreciation, I wouldn't want anything in my portfolio which provided less than 8% gross yield, as I want to maximise my LTV to give me access to more of my capital whilst remaining well protected against interest rate rises.

 

Cheers

 

Andy

[Jack bailey]

Thanks Martin, Great Spreadsheet!

[Gavin H]

Thanks very much for the spreadsheets Martin. Very helpful. 

[Andy Walker]

Ok, thanks for the advice.

 

Here's my spreadsheet for calculating return on investment, mortgage payments, returns, etc.

 

Happy for anyone to use it but do so at your own risk. I'm fairly happy that all the formulas are correct but you might want to check first. All you need to do is fill in the grey cells. I've already populated it with a basic £65,000 property with a 13k deposit and a £450 per month rental income.

 

Have a play around and let me know what you think, 

 

 

https://www.dropbox.com/s/5v5m3e2rgnfffdz/Property%20Calculator%20-%20Excel.xlsx

 

Cheers

Martin

Thanks Martin,  I have been looking for something like this for a while.  Much appreciated.

 

Andy

[mwoodage]

Thanks Martin,  I have been looking for something like this for a while.  Much appreciated.

 

Andy

 

No problem Andy, glad you like it,

 

Martin

[martin]

Hi all,

 

I've got real data from my Glasgow properties and the most important thing I look at is net yield.  I'm currently getting a minimum of 3% net yield from my properties, which I think is a good start.  ROI is more difficult to calculate as it can get supercharged by any capital appreciation due to leveraging.

 

I paid far too much for my first property, and my "rent only" ROI on that is 5% (this increases with time due to increased rent and no buying costs factored into this calculation in years 2, 3 etc.)

 

My second "rent only" ROI is a much better 12% and improving (here I negotiated a good price and got a great rent).

 

If you then factor in capital growth and If prices go up by, say, 5% p.a., then these figures would change to c. 10% and 20% respectively.

 

Hope that helps you with some benchmarking.

 

The much maligned Gross Yield metric, is still a very good indicator to compare properties against each other.  It doesn't tell you much about your bottom line, but it tells you if the property is expensive based on the rental income you could achieve, or not.  E.g., comparing London Gross Yields to Glasgow Gross Yields, there's a huge difference.  So depending on your strategy, this can be a great research metric.

 

M

[Jack bailey]

probably a dumb question but when looking at how your property is performing do you look at the yield or the ROI? 

[Rob D]

probably a dumb question but when looking at how your property is performing do you look at the yield or the ROI? 

 

No such thing as a dumb question!

 

For me, once a property has been purchased, the ROI is the key number because it shows how hard your money is working. There's no "right" answer though.

[martin]

I agree on both counts with Rob D...no such thing as a dumb question, and ROI I think is the ultimate metric.  

 

E.g., you may have 3% net yield (profit p.a. divided by property cost), but your ROI will differ hugely depending on how much you're leveraged.  

 

Scenario 1

If you've paid for the property 100% with your own cash

 

Let's say:

 

Property Value: 100k

Costs of buying (solicitors, mortgage fees, furnishing etc): 3k

Annual profit: 4.5k

 

Net Yield is therefore: 4.5% (profit divided by Property Value)

 

, your ROI will be: 

 

Profit

Divided by

Total cash you parted with = cost of property + cost of buying and furnishing property

 

In this case that's 4.5k / (100k + 3k) = 4.4%

 

Scenario 2

You have a 75% LTV mortgage, so you paid 25% deposit (25k).  your profit will reduce here, as you have to now pay interest.  Let's say you got a 4% mortgage, your annual interest payments are 75k x 4% = 3k.  This means your profits will be down to 1.5k a year: 4.5k -3k = 1.5k.

 

Your net yield reduced to: 1.5% (profit divided by property value)

 

But ROI:

 

Profit

Divided by

Total cash you parted with = deposit + cost of buying and furnishing property

 

I this case it's 1.5k / (25k +3) = 5.3%.

 

So your net yield goes down in Scenario 2, but your ROI goes up.

 

So only ROI really tells you how much work your money is doing for you, as Rob says.

 

In Scenario 1 , you put up 103k, and get a 4.4% return.   In Scenario 2, you only put up 28k and you get a return of 5.3%.

 

The example above does not take into account any price increases or price decreases.  If prices went up by 5%, your ROIs would change to: Scen 1: 9.2% ROI and Scen 2: 23% ROI respectively.  [NB, the more you're leveraged, the higher your ROI jumps when prices go up.  Unfortunately, your ROI equally drops much quicker if prices go down, so it's a risk reward trade off.]

 

So when you are comparing property investment with other investment opportunities, ROI is what you look at.  You could put 28k in the bank and get 1% ROI if your lucky.  But you could put 28k in property and get 5.3% (not including any property price increases).

 

I hope that makes sense and is useful.

 

Cheers,

M

[Andrew Ridley]

Hi All,

 

I think both are important personally. Whilst RoI is the ultimate measure of how hard your money is working, if you don't also buy for a high yield then not only will your income be lower, but you will be at higher risk from changes in interest rates, and it will be more risky to go for higher leverage.

 

I know gross yield gets some bad press and taken alone it doesn't tell you the whole story, but what it does do for me is tell me how much income the property will genarate in relation to it's value. The other thing linked to the property's value is the mortgage and therefore the mortgage payments. So the higher the gross yield, the greater the difference between the rental income and the mortgage cost. So a high gross yield (assuming there are no unusually big ongoing costs) means that I could comfortably sit on a 75% LTV mortgage knowing that the property would still be making a profit even if interest rates go up - so it's a safe asset which I can hold onto forever.

 

Cheers

 

Andy